Market Outlook | June

The month and June quarter ended mixed as markets reacted to the expected quarter point hike by the Federal Reserve. The ninth increase in a year left Wall Street hoping for an easing in the hikes in the future, but there was no nod in that direction. “They are going to keep going,” said David Jones, head of DMJ Advisors, an economic consulting firm. “There will be an August move because there is no hint at this meeting that they will pause.” In addition, May income growth and spending were both weak. Record oil prices above $60 a barrel further pressured the Street.

In tandem with the major markets, the GIANTS/HousingZone.com indices were mixed at the close of our session ended June 30, 2005, with the Builders’ Index posting strong gains and the Product Manufacturing Index heading south. The Builders’ Index increased 7.09 percent to close at 1332.13, and the Product Manufacturers’ Index slid 3.96 percent to end at 972.74. Declining issues outpaced advancing issues at a count of 8-to-6. In the Builders’ Index, advancing issues tore past declining issues by an 11 to 1 margin.

On the Manufacturers’ side, American Woodmark slipped 3.60 points, or 10.71 percent to end at 30.01. For its quarter ended April 30, net income fell to $7.5 million, or $0.44 per share, compared to net income of $8.4 million, or $0.50 per share earned in the year-ago quarter. American Woodmark fell short of its own guidance of $0.53 to $0.59 per share for the quarter. The consensus average from analysts polled by Thomson Financial was $0.55 per share. The company cited steeper costs in raw materials. American Woodmark was our top dollar and percentage loser this month.

Despite being retained in a lead paint lawsuit brought by Rhode Island, Sherwin Williams added 2.64 points to be the top dollar gainer in the Manufacturers’ Index this month. DuPont has reached a settlement with the state at a cost to DuPont upwards of $10 million, but Sherwin Williams is one of six other manufacturers remaining in the lawsuit. Rhode Island’s first lawsuit in 1999 ended in a hung jury in 2002. Lead paint was banned in the U.S. in 1978. Sherwin Williams increased 5.94 percent and closed at 47.09. Dupont shed 0.76 points, or 1.68 percent and ended at 44.53.

Maytag’s first suitor has asked the company to speed up its talks with a second suitor that includes Chinese appliance maker Haier. Triton Acquisition Holding, the consortium fronted by the Ripplewood-led investment team, said that the information Maytag is giving to its rival “is resulting in disruption and uncertainty that is damaging to Triton.” Maytag said its agreement with the Triton group allows it to engage in talks with other challengers and does not grant Triton a termination right. The merger agreement gives Triton a $40 million breakup fee. Maytag added 1.07 points, or 7.33 percent, and was our top percentage gainer. Maytag closed at 15.66.

On the Builders’ side M.D.C. Holdings increased 10.04 points, or 13.90 percent to close at 82.25. The company announced a public offering of $250 million medium term unsecured senior notes. The notes will be due in July 2015.

Shares of Walter Industries slid on the news that the company will purchase Mueller Water Products for $860 million in cash. The acquisition will also include $1.05 billion of Mueller’s privately-held debt. Walter said it expects to complete the deal in the third quarter of 2005. Walter slipped 2.20 points, or 5.19 percent, and closed at 40.20. Walter was the Builders’ Index top dollar and percentage loser this month.